Flip Tip Transcript:

Mike: Hey, it’s Mike Hambright from FlipNerd.com, and we have a quick Expert Tip to share with you from Rick Sharga of Auction.com on how to successfully buy houses at auction.

This Expert Tip is sponsored by RealtyMogul.com, B2R Finance, and National Real Estate Insurance Group.

Rick: Yeah, we sell about 50,000 properties to people buying at auction every year and there are some best practices that you probably want to try and incorporate if you’re going to buy a property from Auction.com, another online auction site, or a live auction.

The first thing is, do your homework before you get started. Make sure you understand what kind of property you’re looking at, what the conditions of the property are, what the neighborhood looks like, what the demographics are, even what the employment history looks like in that particular area where you’re looking to buy a property. Buying the property will not be successful unless you can do something with the property after you’ve purchased it.

So it’s really, really critical to do all the homework that you can to make sure that what you’re buying is the property you want and the property you’re going to be able to successfully do something with as an investor, whether you’re planning to flip the property or you’re planning to hold it as a rental unit.

That’s part of the due diligence, by the way. If you’re looking to flip the property, then you need to do some research regarding what property sales are looking like in that area, what the volume of sales looks like, what the prices are doing in terms of appreciation and depreciation. If you’re looking to rent, what’s the availability of rental units in the area? What’s the going rental rate for properties that are comparable to the one that you’re looking at, and will you be able to turn a reasonable monthly profit on whatever that rental rate might be? So, due diligence is important.

On our site, we’ll put everything that we have available on a property on the property details page and commercial markets will even have a due diligence, with things like contracts and leasing information. But make sure you do your due diligence. If you’re not sure how to do that, work with a local real estate professional who can help give you some tips on that.

Second, get your financing in order before you get started. Obviously, being a cash buyer puts you at a distinct advantage over other purchasers. In some cases, having proof of funds before the auction is really a mandatory step. For example, if you’re buying at a foreclosure sale or a share sale, or a live event at the courthouse steps. Most states will require that you show proof of funds before you bid on a property at those auctions. But having your financing in place beforehand, not having any contingency financing, not having anything that might cause a seller to think that, perhaps, you’re not the right person to sell a property to because you’re financing’s not secure, greatly enhances your opportunity to be able to successfully complete the auction.

Speaking of completing the auction, when you’re looking at a property, when you have your financing in order, and I can’t emphasize this enough, have a price and stick to it. The danger in auctions is to get caught up in the enthusiasm of the bidding event and go crazy with your bids, and we’ve seen this happen. To a certain extent, I’d like to say it’s good for us, but it’s really not in the long run because if you’re a company and you get the reputation of people paying too much when they buy properties from you, they’re simply not going to keep coming back.

So have a price, have the discipline to stick to that price. Make sure it’s a realistic price. And then the discipline to be able to stop bidding. When you get to that price point, decide that’s good. And don’t get so in love with the property that you think if you don’t get that one, your life as a real estate investor is over and you’re doomed to failure, because I promise you, there’ll be another property coming down the line right after that.

So those are the things that are, kind of, top of mind. I guess the fourth one is to make sure you understand what the value of the property is and what the cost of the property you compare are going to be before you get started. Build that into your price before you start bidding, before you get your financing in place.

So, do your home work, get your financing in place, have discipline about the price you’re willing to pay, make sure that when you determine that price, you’ve factored in things like what the property’s really worth and how much it’s going to cost to repair it. If you do all that, I think your odds of being successful at an auction are really, really good.

Please note the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.